OPEC’s end-of-year decision rallies prices, oil...

1of 4The oil and gas industry has seen many ups and downs throughout 2016, as is reflected in the wide swings contained in the Dallas Fed’s Energy Survey. One of the high marks was the discovery of the Alpine High field by Apache Corp., which says it may have found a field with over 20 billion barrels of oil.Photo: Brittany Greeson /San Antonio Express-News

2of 4Apache operations in West Texas. Houston’s Kinder Morgan said Thursday it’s ready to move forward with its $1.7 billion gas pipeline from West Texas to the Corpus Christi area after signing on Apache Corp. as a major customer.Photo: Courtesy /Courtesy

3of 4Russian Minister of Energy Alexander Novak (left) and Saudi Arabia’s oil minister Khalid Al-Falih attend a news conference after an OPEC meeting in Vienna on Dec. 10. The oil cartel along with non-OPEC members including Russia agreed to cut over 1.5 million barrels of oil production starting in the new year.Photo: Ronald Zak /Associated Press

4of 4The Abraxas Petroleum Corporation frac spread in Atascosa County Texas on August 23, 2016. San Antonio-based Abraxas Petroleum Corp. lost $4.1 million during the fourth quarter of 2017, but earned $16 million for the year, according to financial results it reported after the market closed Tuesday.Photo: Carolyn Van Houten /Carolyn Van Houten

Many oil and gas producers in Texas, parts of Louisiana and New Mexico believe the worst is over for their industry as prices rebound above $50 a barrel and billions of dollars of deals have been made in 2016.

The fourth-quarter Energy Survey of 147 energy exploration and production and service companies by the Federal Reserve Bank of Dallas shows that while there is optimism in the industry, a nervousness exists about commitments made by powerful international oil producers to cut production starting Sunday.

The oil industry has undergone deep cuts and a longer-than-expected downturn that has lasted more than two years after the Nov. 24, 2014, decision by the Organization of Petroleum Exporting Countries to maintain production and not prop up oil prices. An OPEC decision at the end of this November to cut production by over a million barrels of oil a day, coupled with non-OPEC cuts of more than 500,000 barrels a day, have combined to push oil prices above $50 for most of December.

But doubts remain.

“OPEC’s recent agreement is suspect. They have rarely lived up to their agreements in the past, and the increase in the price of oil because of their meetings and agreement is temporary,” said a survey respondent from an exploration and production company.

When asked by the Dallas Fed about whether they believed OPEC and non-OPEC countries would enforce the agreed-to cuts, 58 percent of respondents answered “No.”

Tom Tunstall, who has studied the economic effect of shale fields as research director at the University of Texas at San Antonio, said OPEC’s ability to control its members’ production hinges on how high oil prices rise.

“For a long time into the future, I think $60 is the absolute ceiling on oil because after that either the OPEC cheaters will start producing more or, frankly, the U.S. production is in a position to ramp up and be profitable at those prices,” Tunstall said.

The Dallas Fed’s Energy Survey has swung wildly in 2016 as oil prices hit bottom at $26 a barrel in February, thousands of jobs were lost and billions of dollars of projects were shelved or outright canceled. More than half of survey respondents in the first quarter said business activity was slowing and 60 percent were cutting capital expenditures.

Of those oil and gas companies surveyed in the fourth quarter, 51 percent are increasing their levels of business activity while 11 percent say it is decreasing. Only 18.5 percent of firms are cutting expenditures, while 46 percent say they are spending more.

“It’s clearly been a roller coaster ride for them and I think people were watching, especially the first part of the year, with trepidation about how low the prices could go and how long they might stay there,” Tunstall said.

While the energy industry has dealt with large price fluctuations, restrictions and regulations imposed by President Barack Obama’s administration and other federal agencies have further constrained where oil and gas companies can drill for oil. With Obama’s government in its waning weeks and President-elect Donald Trump having shaped most of his cabinet with pro-business and energy individuals — including Rex Tillerson, oil giant Exxon Mobil’s CEO — commenters from exploration and production companies reflected positively on future business conditions.

“With the new administration, there is a real chance for an energy policy that is great for the industry and even better for the county, For this to be significant, demand must be increased for both oil and gas,” one respondent said.

Another called the incoming administration akin to having “some common sense at the top of the food chain.”

But Tunstall believes that as the industry moves into 201,7 imperfect information from OPEC and non-OPEC producers will continue to hamper the oil and gas market as a guessing game develops about whether the proposed cuts are being adhered to.

“I worry about the inventory surprises that we continue to get; and if OPEC doesn’t come through on actually reducing its production as promised, along with the other non-OPEC members, we could certainly see oil prices fall back down,” he said.

Rye Druzin is a business reporter who has reported in Texas since he moved to Midland in August 2014. He covers CPS Energy, refiners, manufacturing and oil and gas for the business desk. A native Californian, Rye earned his bachelors of arts in International Affairs from Lewis & Clark College in 2013.